Recession Virtually Assured -- March 4, 2016; To Get There, We Need That "First" Quarter Of Negative Growth

Updates

March 9, 2016: GDPNow's latest forecast -- 2.2% for 1Q16 (estimate)

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 2.2 percent on March 9, unchanged from March 4. 

The forecast for the contribution of inventory investment to first-quarter real GDP growth declined from -0.28 percentage points to -0.33 percentage points after this morning's wholesale trade report from the U.S. Census Bureau. This update also incorporates data on imports and exports of services in January from last Friday's international trade report not included in the previous GDPNow update. This caused the contribution of net exports to first-quarter real GDP growth to increase from -0.35 percentage points to -0.31 percentage points. 

Original Post

Apparently "the impending recession" is the story of the day over at CNBC. I see those stories all the time over at CNBC so I generally take them with a grain of salt. I can't do much about recessions anyway (though I do buy stuff I don't need at Walmart to to do my part to keep the US economy humming). There are some silver linings in a recession, so, for me, it's generally a wash, as they say. But, be that as it may, I was surprised to see that "recession" talk in this article from Rigzone on cheap gasoline. Reading an article on cheap gasoline I certainly did not expect to see this:

Noting that cheap fuel "absolutely" benefits the economy, Holt contends that two factors have nonetheless diminished its positive impact. 

First, a "convoluted, inconsistent" regulatory regime has made the U.S. energy market among the world's least predictable, he said. "That unpredictability does trickle down" in the form of price complications in the energy market that affect other sectors of the economy.

In addition, the U.S. economy has sunk into a recession or is on the verge of doing so. 

"What you're seeing now is a downturn in commodity sectors," he said, adding that consumer demand is not as robust as it could be. Two gauges of consumers' attitudes about the economy – one from The Conference Board and another from the University of Michigan – underscore Holt's concerns about demand. 

"With reduced prices for consumers, theoretically every household gets, say, $2,000 more in their pockets every year," Holt said. "You'd think that money's getting spent, but with the high levels of unemployment and underemployment it's not having the same economic effect as it has had in the past." 

Further stifling consumer demand is a faltering upstream oil and gas sector, which for much of the past decade has stood out by exhibiting robust growth, added Holt. "Now that oil and gas is in a downturn, that's probably contributing to the lower benefit (of cheaper energy) to the broader economy," he said.

I posted more than I had originally planned to post. This is what caught my eye: The U.S. economy has sunk into a recession or is on the verge of doing so.

But again, the $2,000/year does not even come close to off-setting the $1000/month extra folks are paying for ObamaCare.

Bottom line: if one is into playing the odds in Las Vegas on whether this prediction comes true, what is the next data point to watch for? A: whether the Fed raises the "rate" in March.

If the Fed raises the rate in March, this tells me the Fed is not worried about a recession now or in the near future (or wearing rose-colored glasses). If the Fed does not raise rates in March it does not say the opposite. Not raising rates will be a red flag but not necessarily because they are concerned about a recession.

The generally accepted definition of a recession is two consecutive quarters of negative growth. We haven't had the first one yet. The GDPNow forecast as of today:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 2.2 percent on March 4, up from 1.9 percent on March 1. The forecasts for real consumer spending growth and real gross private domestic investment growth increased from 3.1 percent to 3.3 percent and -0.4 percent to 0.8 percent, respectively, after this morning's employment situation release from the U.S. Bureau of Labor Statistics.

This was partly offset by a decline in the contribution of net exports to first-quarter real GDP growth from -0.26 percentage points to -0.35 percentage points following this morning's international trade report from the U.S. Census Bureau.

As noted in an earlier blog, the payroll "surge" as reported by the government is offset by fewer working hours/employee and an actual decline in hourly wages.

So, time for a new poll. But first the results of the two current polls.

The results of the first poll in which we asked whether all GOP presidential candidates except Trump and Cruz should now drop out of the race:

• yes, everyone should drop out except the two crazy ones: 26%
• no, everyone should stay in to confuse the low-information voters: 35%
• everyone should drop out except Trump; move immediately to the prize fight, Hillary vs Trump: 15%
• everyone but Cruz should drop out; only Cruz can beat Hillary: 9%
• hold out for Senator John Hoeven at a brokered convention (that does not sound as strange as it seems): 15%

The results of the second poll in which we asked: if the conventional fails to select a nominee on the first vote, is a late run by Romney viable?

• yes: 15%
• no: 85%

Now for the new poll: will the Fed raise rates in March, 2016? Yes or now.

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My Alma Mater

USC tuition will top $50,000 /year for the first time this next academic school year.  

Update Of Existing And Proposed US LNG Export Terminals -- March 4, 2016; Introduction Of The CAVE Dwellers

EIA map of existing and proposed LNG export terminals in the US at this link. Four LNG export terminals are currently under construction:

• Dominion Energy's Cove Point LNG facility in Cove Point, Maryland, is scheduled to bring one train totaling 0.82 Bcf/d online near the end of 2017.
• Corpus Christi LNG, another Cheniere project, is under construction in Corpus Christi, Texas. The terminal is scheduled to begin service in 2018, with total permitted capacity at 2.14 Bcf/d.
• Sempra Energy's Cameron LNG terminal, located in Hackberry, Louisiana, is under construction and is scheduled to bring three trains online in 2018. A total of 1.7 Bcf/d has been permitted.
• Freeport LNG's terminal planned for Freeport, Texas, has three trains under construction totaling 1.8 Bcf/d. The first two are scheduled to begin service in 2019, and the third in 2020.
• Another terminal, Southern Union's Lake Charles (Louisiana) LNG facility, has been approved by FERC but is not yet under construction. Lake Charles also has an LNG import terminal. Several more LNG export terminals, mostly on the Gulf Coast, have been proposed or have pending applications with FERC.

One can, of course, scratch off the two proposed LNG export terminals in the Pacific Northwest and the one in Maine. All three are located in "no-growth sanctuary regions" of the US where CAVE dwellers now reside. The Citizens Against Virtually Everything have strongholds in several regions across the US, but are probably most prominent in the heartland of America (the Nike swoosh, from Nebraska through Iowa up to Minnesota), the Pacific Northwest, northern California, and the New England states. Wow, I'm starting to feel claustrophobic.

Speaking of which, did you all see that Jerry Brown's "bullet train" has been delayed three years? Yup. Something about finding out that it was going to be more expensive and more difficult than first realized. LOL. For heaven's sake, this is California. I'm not in favor of the bullet train, but I wouldn't stand on tracks to stop it. Que sara, que sara is what I always say when it comes to bullet trains and other flights of whimsy. Or would this be tracks of whimsy?

California will need to double down on support of the bullet train by digging deeper into the state's wallet and accepting a three-year delay in completing the project's initial leg, a new business plan for the 220-mph system shows.

Rail planners have turned their construction plans upside down, attempting to fit the mega-project within the state's limited budget.

The 2016 business plan, released last month, shows that the Los Angeles-to-San Francisco rail link has proved to be politically and technically more complicated to build than foreseen in 2008, when voters agreed to help finance the project with a $9-billion bond.

The plan acknowledges the biggest of those problems: The costly and geologically complex crossing of the Southern California mountains cannot be completed by 2022, as the rail authority had long contended.

I was going to say: I believe the state is already setting aside money for this project. It should be quite a slush fund by 2025. But the linked story provided that information deep, deep in the article:

Rail officials say the new plan is a breakthrough that solves many funding problems because the state has amassed enough money to build a $21-billion initial operating segment from San Jose to the Central Valley by 2025. Construction of that segment will help persuade investors to put up money to complete the entire system, the officials say.

Everyone knows this is not going to go 220-mph, except perhaps on a 10-mile exhibition, opening day run, just for the fun of it and to get some great video of the engineers' "OMG" look. I wrote that before I read this, also buried deep in the story:

The 99-page plan and its backup technical documents again raise questions about service and speed. A sample operating schedule does not show any nonstop trains between Los Angeles and San Francisco. The fastest travel time between the cities would be 3 hours and 14 minutes, not the 2 hours and 40 minutes many people expect.

Virgin America currently advertises 1 hour 10 minute from LA to SFO. An hour (max) in the limousine (max) because all the rich people in LA live on the west side near the airport anyway, and one gets 2 hours 20 minutes by air. But you will get a better snack on the Jerry Brown Bullet Train, most likely organic and veggie in nature.

Back to cost: the new plan is projected to cost $21 billion for about 250 miles, San Jose to Bakersfield, or $84 million/mile. To keep this easy, let's say the cost is $25 billion for about 250 miles or $21 billion for 210 miles, and it gets to $100 billion.  

Which brings us to my favorite animal rights activist:

Que Sera, Que Sera, Doris Day

To Be Taken With A Grain Of Salt -- March 4, 2016

Wow, talk about influence.

Within days after winning the Oscar for best actor, Leo DiCaprio got his revenge on that grizzly bear that was supposed to have either mauled him or raped him (I am not making that up).

From the AP:

The federal government is proposing to lift threatened-species protections for hundreds of Yellowstone-area grizzlies, opening the door to future hunts for the fearsome bears across parts of three states for the first time since the 1970s.

The proposal caps a four-decade, government-sponsored effort to rebuild the grizzly population and follows the lifting of protections in recent years for more than a dozen other species, including the gray wolf, brown pelican and flying squirrel.

Hunting within Yellowstone National Park would still be prohibited. But the proposal could allow animals to be taken in surrounding parts of Montana, Idaho and Wyoming.

Since one still won't be able to hunt inside Yellowstone NP, I assume that dentist from Minnesota will strew salmon along trails just outside the park to attract the bears.

Not a good idea any more, trying to escape Yellowstone NP:



Also, the tragic death of famous wildcatter Aubrey McClendon has folks checking their automobile brakes this week. The US is investigating 420,000 F-150's for brake failure. That's the fastest I've ever seen the US government react to a vehicular mishap. 

Surprise, Surprise: Average Hourly Work Week Declined To 34.4 Hours; Average Hourly Wage Decreased; ObamaCare Mandates 35 Hours To Receive Employer-Provided Benefits -- March 4, 2016

Remember the "magic numbers" that were posted before the Obama administration:

The Magic Numbers

First time claims, unemployment benefits: 400,000 (> 400,000: economic stagnation)

New jobs: 200,000 (< 200,000 new jobs: economic stagnation)

Economists estimate the labor market needs to create about 125,000 jobs a month to keep the unemployment rate steady, though estimates vary -- Reuters.

Now, the February jobs numbers: 242K vs 190K forecast.

Despite the strong headline number, the closely watched average hourly wages actually declined for the month, falling three cents and equating to a 2.2 percent annualized jump, down from 2.5 percent in January. Fed policy makers are looking at wages for evidence of inflation. The average hourly work week also declined 0.2 hours to 34.4.

Speaking of which: when does ObamaCare mandate? 35 hours. 

To some extent, the "surge" in February should have been expected with the horrendous January, 2016, showing: 172,000.


source: tradingeconomics.com
The average of the most recent 12 months: 221K/month. Note the "magic numbers."

So, we have hourly wages declining AND number of hours decreasing.

The question is whether an individual holding two jobs -- do they count one individual as working, or two jobs filled? I assume the latter. I'm sure it's a complicated formula that can be massaged. 

Unemployment rate remained unchanged at 4.9%. And, of course, we all know how accurate that is.  

In what sectors were jobs being added?

Health care and social assistance added 57,000 jobs, construction added 19,000 jobs, and private educational services employment rose by 28,000 in February. But the sector that really caught some by surprise was retail. Retail added 55,000 (and this was in February).

Gilding the lily as they say, from the linked article: The labor force participation rate, which is a measure of the active portion of the labor force, rose to 62.9% from 62.8%, the highest since January 2015.

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Retirement 

A variation of this story seems to be published at least once every month, pointing out how dire Americans' retirement savings accounts (including pensions). This one from Yahoo!Finance:  

In effect, we have kicked two of the legs out of the three-legged retirement stool. Individual savings have stagnated along with wages, as more and more of workers’ paychecks cover little more than everyday needs.

The pension has been substituted with a stock plan that was never intended to serve as an adequate replacement. The new 401(k)’s “were initially viewed as a supplement to traditional pensions,” Morrissey said. “It’s not surprising that they haven’t worked out, because they weren’t intended to serve that purpose.” 

I do not understand that last statement. Whatever. The article goes on with the solution. Oh, yes, spend other people's money as Bernie Sanders suggests:

The solution, to Morrissey, is to strengthen the one leg of the stool that has remained intact: Social Security. This remains the one program that is critical to retirees across the spectrum, regardless of race, income or education. For low-income seniors, Social Security represents nearly all of their income. Social Security expansion has become a rallying cry for liberals, and with Bernie Sanders’ support it could become the one piece of his agenda that gets accepted in the Democratic platform, as the best way to arrest the retirement crisis.

 Now that I've read this, I feel duped. This was an "advertisement" disguised as a news article supporting Bernie Sanders. Whatever.

I do agree that employers took advantage of 401(k)'s to feel "okay" about cutting pensions. But that doesn't mean 401(k)'s haven't worked out as intended; employers took advantage of them. But to some extent, some employers may have had to offset ObamaCare taxes with lower pension costs to survive. I don't know. Just Friday morning rambling.

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Notes to the Granddaughters

I'm in a great mood. I've had a GoPro Hero 3+ for quite some time now. My wife suggested I use the money we got for turning in our iPad version 1 to Target some years ago to buy a GoPro camera. It overwhelmed me at first: it seemed like to many instructions, too complicated. But over the years, working with new technology and with the help of our 19-month-old Sophia, I now feel much more comfortable.

I also had a lot of free, uninterrupted time. May is out in California for a couple of weeks. Last night I devoted four hours of uninterrupted time to really study the manual and play with the camera. For things I did not understand I went to YouTube. For example, GoPro includes a white, rubbery thing, which is what it is called: the "white, rubbery thing." I had no idea what it was for, and the manual did not mention it.

YouTube did. Very, very clever.

Anyway, here's my first GoPro video:



Just kidding. I will post my "real" GoPro video later today.

With regard to the F-111 video above, I had about a dozen sorties in the right seat of the F-111 while assigned to RAF Lakenheath. I had over a 100 sorties in the F-15, but in the F-15, I was simply "walk-on" baggage riding along with a two-seater was put on the flying scheduled. However, with the F-111 I was very much part of the crew: navigating, dropping dummy ordnance on training runs. I never experienced any close calls in the F-111 like the one in the video above.

Friday, March 4, 2016

Active rigs:

	3/4/2016	03/04/2015	03/04/2014	03/04/2013	03/04/2012
Active Rigs	35	114	190	183	207

RBN Energy: Any Credence in a Near-Term Methanol Revival?

Times are tough in the methanol market. Posted and spot prices for methanol have continued falling (to levels not seen since 2010). New methanol capacity, planned during the good ol’ days, has been coming online, further depressing prices. And while more methanol-to-olefins (MTO) plants are starting up in China—the product’s biggest market—they are running at far less than full speed. But one bright spot for U.S. methanol producers is dirt-cheap natural gas, providing U.S. plants a competitive advantage versus those in the rest of the world. Today, we examine recent developments in the methanol market and consider what may be coming next.

We begin with a brief recap of what methanol is, and how it’s produced and used. As we said more than two years ago in Cheap Trick, methanol is a basic chemical feedstock. It looks like clear water (if only we could have worked that into today’s CCR-related blog title!) and it’s produced primarily from natural gas using a steam methane reformer process (though it also can be made from coal and other hydrocarbons).

About two-thirds of methanol’s worldwide demand is tied to its traditional use in the petrochemicals market, making formaldehyde, acetic acid and petrochemical intermediates that, in turn, are used to make plastics, synthetic fibers, paints, resins and solvents, among many other things. 

The balance of the methanol produced annually is used either in MTO plants (most of them in China) that directly convert methanol into ethylene or polyethylene; in methanol-to-propylene (MTP) plants; as a fuel (again, mostly in China); or as a fuel additive. For example, methanol can be blended into gasoline. It also can be used to produce dimethyl ether (DME), an alternative motor fuel and sometimes replacement for propane; methyl-tertiary-butyl ether (MTBE), an octane booster (banned in U.S. markets); or tert-amyl methyl-ether (TAME), a fuel oxygenate.

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Noonan On Trump

The op-ed here. I've often thought that Donald Trump was running as a 3rd party candidate who co-opted the Republican Party. Instead of running like Ross Perot as a third-party candidate, he knew that to have a chance, he had to be nominated by one of the two parties.